1It is often argued that using Equity based pay for CEOs can resolve the conflicts between management and shareholders. Explain the logic behind this. Do you see any disadvantages to using stocks and options to compensate executives?

2Describe the operations of a bank. Describe some of the competition banks face that can reduce bank profits.

3What is deposit insurance? What are the advantages and disadvantages of deposit insurance?

4Companies such as prosper.com and lendingclub.com promise to provide investors an opportunity to make higher returns than putting their money in bank deposits. Can you provide reasons why lending through lending club results in higher returns for the investor?

5Derivatives are used for hedging. Explain how an airline can hedge the cost of fuel using different types of derivative contracts. Which is your preferred hedging strategy.

6What is the Black-Scholes value of an at-the-money 3-month call option on Apple? The stock price of Apple is $112, it has a dividend yield of 2%, and its volatility is 30%. Assume that the 3-month interest rate is 0.5%.

7Bond rating agencies are necessary for bond markets to exist. Explain the role of bond rating agencies in ensuring an active bond market.

8It is said that having the issuer pay the fee for getting a bond rated, creates a moral hazard problem. Explain why this may be so and what could be potential solutions?